The Age of Extreme Offshore Oil Is Just Beginning

As the demand for oil surges, companies push farther under the ocean, finding a bonanza of crude far beneath the ocean. Can we safely drill through miles of water, rock, and salt without more terrible blowouts?

Marcos Bueno de Moraes still recalls those tense days of drilling. Geophysicists at his firm, the Brazilian oil company Petrobras, had used a novel 3-D seismic technology to probe for oil trapped underneath the seafloor, 180 miles off the coast of southeastern Brazil. It was the mid-2000s, oil prices were just beginning to recover after dragging bottom for more than a decade, and cost cutting was still gospel in the petroleum industry. But with preliminary soundings pointing to a massive cache of crude, the corporate brass overruled the bean counters and took their biggest gamble yet: prospecting four and a half miles beneath the surface of the Atlantic.

From his desk in the company’s concrete-block office tower in downtown Rio de Janeiro, Bueno, an exploration geophysicist, was tasked with interpreting seismic data streaming in from a battleship-gray exploration vessel moored in the open seas, more than an hour’s helicopter flight away. There, discovery crews working day and night had lowered a drill rig through 7,200 feet of water and were trying to break through another one, two, maybe three miles of sand, rock, and a massive crust of prehistoric rock salt to what might—or might not—be a major deposit of “pre-salt” oil below.

Although the potential payoff was huge, the risks were enormous too. In the wake of the BP blowout in the Gulf of Mexico, we now know just how enormous, but even then the perils of going after oil in ultradeep water were no secret to prospectors. Water pressure at those depths is more than 200 times that of the atmosphere at the surface, and no one knew what all the heat, gas, and salt below the seafloor might do to the drilling equipment. “If the pressure was too great and the right precautions not taken, the well could have blown and even set the drill platform on fire,” Bueno recalls. After more than a year of drilling, they had hit nothing. “I remember it was on a Friday that we had to decide: Do we scrap the whole experiment or keep going?”

In 2010, after seeing crude oil hemorrhaging from the floor of the Gulf of Mexico, fish and seabirds marinating in black sludge, and Big Oil on the public pillory, the notion of gouging the deep ocean floor for fossil fuels seems reckless, if not criminal. Yet Petrobras’s gambit in the high Atlantic is a striking example of how far oil companies are willing to go in these days of energy uncertainty to tap the earth’s dwindling reserves of oil. Explosive growth in the world’s emerging economies has lit up patches of the map that barely flickered a few decades ago, jacking up the demand for power and straining known oil reserves to the limit. India and China will consume 28 percent of global energy by 2030, triple the juice they required in 1990, according to the U.S. Department of Energy. China is set to overtake the United States in energy consumption by 2015. And as the global recession seems to ease, oil demand is racing upward.

The result is a scramble for new sources of crude in seemingly impossible places. The hunt for extreme oil proceeds apace in the ultradeep waters off the coasts of Ghana and Nigeria, in the sulfur-laden depths of the Black Sea, under the polar ice caps, and in the gummy tar sands of Venezuela’s Orinoco Basin and Canada’s McMurray Formation. The Gulf debacle has shaken national governments, but it has hardly deterred them. Mexico is taking advantage of the fallout from the disaster next door—and the suspension of cross-border prospecting—to buy time for its national oil company, Pemex, which plans to beef up its own deepwater capabilities. A month after Deepwater Horizon exploded, the Australian government reaffirmed its commitment to ocean drilling, putting 31 offshore blocks up for bidding, 17 of them in deep waters. While pundits and regulators issue encomiums to safety, the most noticeable shifts in the “post BP” oil industry are a fat discount on rental rates for offshore platforms no longer needed in the Gulf and the exodus of idled rigs heading to other waters.

Next page: Charging ahead into the depths

Brazil's President da Silva and his oil; displaying the first spoils of the well.

Petrobras News Agency

If there are second thoughts in the penthouse at Petrobras, they are difficult to detect. The company dispatched its troubleshooters to aid BP in the Gulf, and the Brazilian regulator (the National Petroleum Agency) has ordered companies to review their inspection and safety procedures for offshore operations. But Petrobras, the eighth-largest company in market value in the world, has shown no signs of altering its drilling calendar, and held a $70 billion public stock offering this fall, the largest issuing of stock in history.

Such exuberance might seem odd. Petrobras’s new find lies more than three times farther from shore than BP’s ruptured Macondo well, and beneath 7,200 feet of ocean compared with the 5,000 feet of water at the BP blowout site. But the engineering feats needed to get at the oil below the salt layer have stoked Brazilian national pride. “So much hope has been deposited in the new pre-salt oil as a source of revenue to alleviate fiscal accounts, to finance education and health, and to leap Brazil into a new cycle of investment and growth,” says Christopher Garman, a Latin America analyst for the Eurasia Group, a firm that evaluates risk. “The only political fight in Brazil is over how to spend its future oil bounty and who gets the lion’s share.”

Petrobras has had its own accidents along the way, including the 2001 explosion and sinking of P-36, then the world’s largest floating oil platform. The incident took 11 lives and spilled thousands of barrels of crude oil into the Atlantic. After taking a beating in public and in the courts, the company overhauled its safety measures, automating much of the drilling operation and lowering its accident rate. Petrobras now says it has been fetching more oil from deep down than any other company. (It currently controls nearly a quarter of global deepwater operations.) As the search for extreme oil pushes geophysicists and engineers to the limits of their capabilities, Petrobras is in the vanguard.

And so Bueno and his team kept drilling. In late 2006, after 14 months and $240 million in expenditures, Petrobras found its oil. The test well’s official name was RJS-628, and the area was dubbed Tupi after the Tupi-Guarani Indians, some of Brazil’s original inhabitants. That well was a game changer. Subsequent tests pointed to 5 billion to 8 billion barrels of crude oil at Tupi alone, the largest find since the massive Kashagan field in 2000 in Kazakhstan. Now Brazilian officials speak of 50 billion barrels or more lying below the salt: a 160-million-year-old empire of hydrocarbons, comparable in volume to the great oil fields of Saudi Arabia and Kuwait, spread below an expanse of ocean half the size of Italy—all suddenly within reach. President Luiz Inácio Lula da Silva called it Brazil’s “winning lottery ticket” and later flew out to a platform ship to symbolically inaugurate a giant test well, dipping his hands in the “first oil,” like some Hollywood idol leaving footprints in wet cement.

All that remains to do is collect—but it will not be easy. The Brazilian jackpot is buried deeper below the sea’s surface than Alaska’s Mount McKinley is tall. Both the scale and cost of operations are epic—renting an offshore drill rig costs $500,000 or more a day—and the technological challenges are harrowing. Powerful ocean currents, brutal temperatures, and occasionally gale-force winds assail the rigs, tankers, and pipes. Water pressure and thermal shock are intense as oil from the reservoir bubbles up into the well at 140 degrees Fahrenheit, only to hit near-freezing temperatures at the ocean floor, which can cause it to coagulate in the pipes. Then there is the challenge of shepherding all that crude safely back to the surface and to shore, a full day’s journey by tanker.

The explosion that sank BP’s rig (video) in April was not lost on Brazilian regulators, who demanded that all companies operating in national waters review their emergency plans. The political blowback from the Gulf might still hit Brazil, but in a nation that has described its new oil bounty as a “second independence,” the engineers and geophysicists trump the Cassandras. “Extracting pre-salt oil is the equivalent of putting a man on the moon,” says Shafe Alexander, director of exploration for BP’s Brazil operations. “This is pushing the frontier.”

Salt is often associated with petroleum. In fact, back in the 19th century, oil was an annoying by-product of brine wells drilled by salt prospectors; it was either discarded or bottled and hawked to gullible customers as a cure for rheumatism and sprains. Much of the oil under the North Sea, once considered to have the world’s most challenging oil fields, lies trapped below layers of rock salt, the remains of an ancient seabed laid down 250 million years ago when salt­water invaded an inland rift and then quickly evaporated in the arid climate. But the salt below the Brazilian Atlantic is something else entirely: more remote, thicker, and more daunting than anything the oil industry has ever faced. Oil companies used to avoid salt, sometimes drilling around it to reach deep deposits. But with traditional petroleum reserves in shallower waters waning and advanced geological surveying techniques pointing to tantalizing reserves below, companies now know the pre-salt oil is too good to ignore.

Drilling it is another matter. Just to reach the crust of salt that overlies Tupi’s oil, prospectors had to plumb the 7,200 feet of ocean and another 10,000 feet of rock and sandstone below the ocean floor. Then they had to pierce through more than a mile of rock salt. Crossing the salt barrier brings even more complexity to deep-oil extraction. “What we don’t know is how nature works under the salt below the bottom of the ocean,” says José Sérgio Gabrielli, Petrobras’s president and evangelist-in-chief.

Nor does anyone else. The salt below the ocean is essentially the same as the crystallized stuff we sprinkle on our food, but compressed underground, it behaves in unpredictable ways. Because it is weaker and softer than surrounding rocky sediment, it behaves more like a fluid than like crystal or stone. Under immense geologic pressure and heat, it easily deforms and tends to creep underground. That makes salt an excellent geologic seal, wrapping around the porous rock where oil and gas are pooled. It is also the bane of exploration crews.

Engineers liken drilling salt to boring through taffy: Open a hole and it immediately oozes shut. That means well walls and pipes have to be strengthened with special steel to prevent collapse, buckling, or rupture. Engineers must also insulate the riser pipes with polymers, plasticlike material that makes the pipes more flex­ible and keeps the oil from cooling too quickly and clotting on its way to the surface. And to guard against hydrogen sulfide and other corrosive gases that come bundled with pre-salt oil, Petrobras is experimenting with resistant materials to protect the pipelines. Such technology is rapidly becoming standard for ultradeep-water drilling.

That the world’s biggest oil companies share standards for ultradeep-water drilling is encouraging; it means there are no cowboys out there, winging it with untried technologies. It is also worrisome, for the same reason. The safety valves that failed to stanch the oil leak after the blowout at BP’s Deepwater Horizon well are used everywhere. “This is latest-generation equipment. No one knows what went wrong or why,” Carlos Henrique Abreu Mendes, environmental manager for the Brazilian Petroleum Gas and Biofuels Institute, a trade association for energy companies, told reporters at a press conference in May.

Next page: A phenomenal feat of fossil fuel

Although it may be hard to appreciate amid the backlash over the BP accident, merely locating oil below all that sea, sand, and salt was a heroic achievement. Geophysicists have known for decades that plenty of oil and gas is hidden away below the oceans, but they were unable to see it clearly with traditional seismic techniques. Because salt is much less dense than rock, the sound waves surveyors use to scour the depths race through it at nearly three miles per second, twice as fast as it traverses the surrounding rock and sand. When sound waves pass from compact rock in the seabed to the pliant salt below, they kick into overdrive, scattering and distorting the seismic waves. The result is a blurry image that geophysicists compare to a snowy television picture, making it almost impossible to define the true size and position of the salt cap.

To sharpen the picture, Petrobras upgraded its toolbox with 3-D imaging. Traditionally, geophysicists take readings by sending sound waves straight down and straight back, creating two-dimensional pictures of slices of the earth that can be “read” like individual pages. But since salt can blur any given seismic image, exploration crews fired their seismic probe from various angles and then put all the images together to produce a three-dimensional view of the salt block. The technology helped them zero in on an intriguing section of seafloor in the little-known Santos Basin, off the coast of southern Brazil. To confirm the findings, Petrobras’s computer engineers have spent years developing software to correct for distortions—both sound wave reflections and seismic noise—that salt introduces in the readings. After multiple 3-D probes, they had a sense that something big was buried under the salt.

BP pioneered the exploration of oil and gas sealed beneath salt domes under the Gulf of Mexico, and potential pre-salt oil reserves of untold dimensions are currently being mapped along the west coast of Africa in the waters of Gabon, Angola, and Ghana. That area is a geologic mirror image of South America’s eastern flank, the two continents having separated when the supercontinent of Gondwana broke apart some 160 million years ago.

But Brazil may be sitting on the largest pre-salt resources of all, meaning that Tupi may represent both the pinnacle and the end point of this type of exploration. Finding and retrieving all this oil (and the associated natural gas) weighs heavily on the balance sheet. The first pre-salt test well took 14 months and cost $240 million, although more recent Petrobras pre-salt offshore wells have cost about $66 million each. Just operating a rig to drill in the pre-salt can cost up to $1 million a day. Industry insiders estimate that retrieval costs for Brazil’s proven pre-salt reserves could run as high as $1 trillion.

Then there is the cost of accidents. For years it was anyone’s guess what would happen if something went wrong on the extreme-oil frontier, at depths where no human or manned vessel could venture, and where the last line of defense would be a subsea robot piloted from miles away by remote control. Thanks to BP, we can now watch the unthinkable unfold on YouTube. The Deepwater Horizon disaster has been called the 9/11 of the oil business, the event that changes everything in the industry. With its reputation in tatters and its liabilities piling up, BP will surely be reeling for years.

What keeps Petrobras going is the size of the prize. Just the proven reserves in three different Brazilian pre-salt exploration areas total 10 billion to 16 billion barrels, the largest oil discovery in the Western Hemisphere in three decades. And that may be only the beginning. After drilling 13 more test wells, the experts now reckon that the pre-salt reserves sprawl over an oblong slab of more than 57,000 square miles of ocean—Brazilians call it “the blue beefsteak.” And the petroleum there is not the heavy, low-grade stuff that Brazil currently fetches from existing offshore wells, but light, sweet crude, the prize of hydrocarbons, preferred for jet fuel. By the end of the year, Petrobras will have to report to Brazil’s National Petroleum Association whether its test well in the Tupi reserve is commercially viable, a formal step in its development.But as emerging markets drive an ever-greater share of worldwide economic growth, the pressures that drove Big Oil into the Gulf of Mexico and the Atlantic are not about to disappear. Certainly the Brazilians—with plans to more than double oil production to 5 million to 6 million barrels a day by 2020—betray no signs of wavering. “There’s a perception in Brazil that they have a better handle on deep-sea drilling than almost anyone,” says Garman of the Eurasia Group.

Environmentalists and politicians might want to back off, but economic pressures keep pushing the other way. “The responsibilities are frightening. The International Energy Agency says we’re going to need to find another 65 million barrels globally by 2030,” says Guilherme Estrella, chief of exploration and production at Petrobras. It seems that the riches and risks of extreme oil are just beginning.